Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Yield Curve Inversion Discrediting 'Soft Landing' Narrative - 9.29.23

There are no secrets here; yield curve inversions are about the most reliable predictors of recessions. After a protracted period of inversion, the steepening phase is when a recession hits the real economy. The Fed has tried its level best to engineer a landing of some sort, soft, hard, gravel, water landing perhaps. If commercial bank lending is anything to go by, we are coming in hot.

Analyzing bank lending reveals a significant drop in commercial & industrial loans by $70bn since its peak in February. Once robust at 15.4% in November 2022, year-on-year growth has dwindled to 0.2% by September 13. Such downturns in loans typically foreshadow recessions. In addition, consumer auto loans have contracted notably, with recent YoY growth at -2.2%. While there are ongoing concerns about commercial real estate lending, especially in the office sector, banks remain active at a much slower pace. The year-on-year growth for this segment decreased to 7.2% in September. Banks are not lending less because they run out of money or because of Basel III regulations. No, it’s because of elevated counterparty risk!

Learn more about the Market Situation Report written by Tier 1 Alpha.


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